What is an NFT? Answering all questions non-fungible
If you’ve spent any amount of time online over the past year, chances are you’ve heard about non-fungible tokens, better known as NFTs. Maybe you heard about Beeple selling a single NFT for $69 million? Or perhaps you’ve seen hexagonal NFT profile pictures on Twitter? Either way, it’s safe to say that NFTs have captured the world’s attention.
But what exactly are NFTs?
A non-fungible token, or NFT, is a non-interchangeable unit of data stored on a blockchain that can be bought, sold, and traded.
Still confused? No worries, so are most people!
Put more simply, an NFT is a unique token that represents the ownership of a digital asset.
What exactly does "non-fungible" mean?
More or less, “non-fungible” means that something is unique and can’t be replaced with something else.
To better understand this, let’s look at what it means when something is “fungible”.
A dollar bill, for example, is fungible. You can take a dollar bill to a bank, deposit it into your account, then withdraw a dollar from an ATM. The value of the dollar you deposited is exactly the same as the value of the dollar you withdrew. For something to be considered fungible, they must be identical to each other for practical purposes.
How about something that’s “non-fungible”?
Take a car, for example. While there are many other cars out there of the same make, year, and model, each car has a unique set of qualities that differentiate them from one another. Things like the mileage, color, tires, maintenance schedule, and the coffee stain on the backseat all impact the value of the car and can be used to differentiate one car from another, even if they are similar.
How do NFTs work?
Now that you have an idea of what an NFT is, let’s take a look at how NFTs work.
An NFT is a set of information that has been written to a blockchain, like Ethereum. This NFT has a unique ID on the blockchain, meaning it is unique from any other NFT on the blockchain. This also means that only one person can own an NFT. The owner is free to sell or transfer the NFT, but when they do, they lose ownership of the asset.
Where are NFTs stored?
An NFT actually consists of two parts — the “on-chain” information and the “off-chain” media.
When you own an NFT, you just own a unique address on the blockchain where all of the “on-chain” information of the NFT resides.
At a high level, the “on-chain” information includes a definition of how someone can interact with the NFT (also known as a smart contract), attributes of the NFT, and a reference to any “off-chain” information.
Wait, so the media that I’m buying doesn’t get written to the blockchain?
In most cases, no. The photo, video, or other piece of digital content that most people think of when they see an NFT does not exist on the blockchain.
Why doesn’t the digital media get written to the blockchain?
Simply put, it’s very, very expensive. At current prices, it would cost tens of thousands of dollars to write a 1 MB file to the Ethereum blockchain.
Then where does the media exist?
Well, that depends. When an NFT is created, where the actual media exists is entirely up to the creator. It could exist on a cloud storage service like Amazon’s S3, on a decentralized file storage platform like IPFS, or on some computer in someone’s basement.
We at Enshrine think that where an NFT’s digital media is stored is one of the most consequential attributes of an NFT and is also something that not many people are handling correctly. But that’s a story for another day.
Can't I just save the image of an NFT and also own it?
While this is a pretty funny question to use when trolling people on Twitter, we’ll give a serious answer.
The short answer is no, saving an NFT to your computer is not the same as owning it.
Let’s use a piece of fine art as an example. Let’s take a look at the Mona Lisa.
We can all agree that there is only one painting of the Mona Lisa, and it hanging on a wall in the Louvre.
Let’s say that I traveled to Paris, visited the Louvre, and took a picture of the Mona Lisa. It’s clear that the picture on my phone isn’t the same as the Mona Lisa.
But what if I paid someone who is really, really good at creating fakes of famous paintings to make me a copy of the Mona Lisa.
Even if I owned a fake that looked indistinguishable from the real painting, I still couldn’t say that I owned the Mona Lisa. I might own a very convincing copy, but I don’t own the real thing.
NFTs do the same thing, except they record the ownership of a digital asset on the blockchain for everyone to see. When you save an image of an NFT, you do get the image on your computer, but you don’t update the ownership on the blockchain. If you wanted to do that, you’d just have to buy it.
Why should I buy an NFT?
If we’re being honest, we don’t think that the vast majority of NFTs on the market today are worth buying.
Wait, you’re an NFT marketplace, right? Why don’t you think we should buy all the NFTs?
As is the case with physical art, we think you should buy it if the content speaks to you. If you’re okay with that piece of digital art that might be worth nothing in a few years, then, by all means, buy away.
However, if you’re speculating on the future price of an NFT, we’d advise against it.
The truth is, most NFTs that you can buy today are created by people that are looking to capitalize on the hype around NFTs. In five years, it is very unlikely that some random picture of a cartoon ape will be worth nearly as much as it is today.
Why should I buy any NFT if that’s the case?
We think there are two reasons to buy an NFT:
- You enjoy the digital art, want to display NFT, and/or want to support the creator. We believe that NFTs are going to be a major way that creators will monetize their content in the future, whether that content is images, videos, articles, or anything else. We wrote an article that goes into much more detail on this subject, you should check it out if you’re interested.
- There is a tangible benefit to owning the NFT. To you, this might just mean bragging rights, and that’s okay. But it can also be an event ticket tied to the NFT, access to a premium Discord server for the owner of the NFT, or land in the metaverse.
How to buy NFTs?
To buy or sell an NFT, you’ll need to create a digital wallet like Metamask, purchase cryptocurrency on an exchange, send that cryptocurrency to a wallet (you’ll usually need to wait several days before you can send your funds), then purchase an NFT (with enough crypto to cover both the cost of the NFT and the gas needed for the transaction).
Sound complicated? That’s because it is.
How to sell NFTs?
Once you own an NFT, you can choose from the myriad of platforms that support the blockchain that your NFT exists on. List it for sale and wait for offers, it’s as simple as that!
Once your NFT sells, the funds will be available in your wallet to do as you wish!
How to create an NFT?
Many platforms offer options to create an NFT. Most, but not all, will ask you to cover the “minting” cost — the cost to create the blockchain asset. Some platforms will ask you to pay it up front, while others won’t ask until your NFT sells/will ask the buyer to pay the fee.
What is the future of NFTs?
The NFT space is constantly changing as people are coming up with more creative uses for NFTs.
Enshrine has a more straightforward answer — giving creators a new, better way to monetize their content and engage directly with their fans.
Today, content creators largely rely on ad revenue and brand sponsorships to earn a living. While this works well for some creators, the only way to make a meaningful amount of money is to have a large audience.
We believe that NFTs give fans a way to directly support their favorite content creators by purchasing copies of their best content. Fans get a permanent piece of digital memorabilia and creators get the money that allows them to continue creating.
We also believe that NFTs offer a unique opportunity for creators to engage more directly with their fans by tying NFT ownership to things like exclusive content, access to events, and more!